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Dealers Emphasize Used-Car Sales: New York Times

A recent shift in thinking among auto dealers echoes a new mindset at the automakers themselves. The industry once paid little attention to used vehicles, preferring to focus its resources on the hottest and most up-to-date new ones. But in a slowing economy, the industry now sees increased opportunity in "pre-owned" cars and trucks, whose sales nationwide outstrip new autos by more than two to one, according to an April 15 story by Micheline Maynard in The New York Times.

Last year, when a record 17 million new cars and trucks were sold in the United States, more than 41 million used vehicles also changed hands. Two-thirds were sold independently by the owners, with dealers handling the rest.

More and more showroom transactions involve what the industry calls certified used vehicles —- part of a marketing strategy introduced in the mid-1990s. Led by Lexus, Mercedes-Benz and Saturn, such autos have proved popular with American buyers. Certified vehicles are those that have undergone inspections by dealers, and are sold with extended warranties.

Statistics on the total number of vehicles sold through the programs are not available, because dealers are required only to state a vehicle's year when it is registered. But this month, Toyota announced that it had sold half a million certified used vehicle since its program began in 1996.

The buyer of the 500,000th vehicle, James Allen, 58, a retired schoolteacher from Winthrop, Me., took home a 1998 Toyota Camry. Allen had looked at several brands before selecting the Camry, which he picked in large part because of the certification. He paid $14,995 for the car, but Toyota later sent him a check for the entire purchase price to commemorate the milestone.

Buying a used car in the past often meant kicking the tires, raising the hood -- and crossing your fingers as you drove off the dealership lot. But under the certification plans, dealers take low-mileage used autos, generally no more than five years old, and give them a multiple-point inspection, from under the hood to inside the glove box.

The vehicles' warranties often run as long as 10 years or 100,000 miles —- sometimes longer than for new autos —- and cover exterior sheet metal as well as the engine and transmission. Free roadside assistance is often thrown in as well. And the dealers complete all the tedious paperwork —- like registration, title and license tags —- that can be time consuming for private buyers and sellers.

Like the finance arms of other automakers, TFS picks up business by offering used-vehicle loans often at the same interest rates available on new-vehicle financing. Banks and credit unions, by contrast, typically charge more for used-vehicle loans.

Dealers make money two ways: first, from the profit they earn on each vehicle, whose price they set, and then from the cut they receive from a financing company if a consumer takes out a loan.

Consumers, meanwhile, get some peace of mind. They also pay much less than they would for a brand-new auto. For example, a certified 1999 Toyota Camry LE sedan with a V-6 engine generally sells for about $17,000, according to Edmunds.com, a consumer-oriented Web site that provides prices on a wide range of new and used vehicles. A new 2001 Camry, similarly equipped, goes for $20,300.

Borst says used vehicles allow buyers on budgets to buy bigger or more luxurious vehicles than they can afford new. "Not everyone comes to the market as a 23-year-old looking for an Echo," Toyota's smallest and cheapest car, he said.

Dealers' favorite used vehicles these days are those that are coming back from leases, since their annual mileage is often restricted and consumers must return the vehicles in clean condition. Last year, 3.43 million vehicles were returned to dealers upon the completion of leases lasting two to five years, the biggest supply ever, according to Bandon, Ore.-based CNW Marketing/Research. This year, the supply is expected to be just under that, at 3.32 million.

The supply of these used vehicles, however, is expected to fall over the next few years. Automakers have been backing off on their previously generous lease deals, burned financially when the vehicles' residual values did not meet the companies' projections, in part because there were so many of those autos on the market. Collectively, financial institutions, including finance companies owned by the automakers, face $11.1 billion in lease losses this year, according to a CNW estimate. That means certified vehicles may well climb in price in coming years.

For now, however, their prices remain attractive, as do those on used vehicles in general. Last year, the average used vehicle sold for just over $9,000, compared with $22,000 for the average new car or truck, according to CNW.

The Internet is likely to help hold down prices. As companies and dealers have gotten deeper into the used-vehicle business, so, too, have online shopping sites like Edmunds.com, Carpoint.com, Autobytel.com, and AutoTrader.com. Just as they can do for new cars and trucks, Web surfers can enter the color, body style, options and approximate price they would like to pay for used vehicles, along with their ZIP codes, and find dealers in their areas with vehicles that match their criteria.

Such sites are helping consumers understand the vagaries of the used-vehicle market. Unlike the prices for new vehicles, which remain more or less steady through the year, except when incentives are offered, used-vehicle prices fluctuate greatly, rising during the summer, when demand is highest, and falling in the winter.

Supplies also vary by region: Florida is the best source for recent rental vehicles, while the Detroit area has a large supply of lightly driven company cars. Prices vary even among states within a region.